Federal PLUS loan standards tighten following changes

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The Education Department's little-noticed October 2011 change to the PLUS loan's underwriting standards--counting unpaid charge-off accounts and accounts in collections during the past five years against PLUS loan applications--created a more stringent set of requirements and may have led to a spike in denials.

An analysis by Mark Kantrowitz of Finaid.org finds that nearly half of would-be PLUS borrowers this academic year may be denied the loan, and the denials have hit hard at historically black colleges and universities, where presidents and higher education associations caution that some students may not return as a result of not being able to get the loan.

The changing student loan standards illustrate the tension faced within the government regarding student loan policy: Should getting a loan be easy, increasing the risk of default from borrowers who can't pay, or should the requirements tighten, increasing concerns about access to college as tuition prices climb?

From the article:

WASHINGTON -- For the past year, parents hoping to borrow a federal loan on their college student's behalf have found those loans are harder to get than they used to be. A little-noticed Education Department change in October 2011 added new underwriting standards for the PLUS loan, the federal lending program for parents and graduate students. The changes made requirements more stringent and appear to have caused a spike in denials, including some to parents who had been able to take out the loans in previous years. ...